REVENUE AND TAXATION CODE
SECTION 24870-24900
24870. (a) (1) Subchapter M of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to regulated investment companies and
real estate investment trusts, shall apply, except as otherwise
provided in this part.
(2) Part 1 of Subchapter M of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to regulated investment companies, as
amended by the Regulated Investment Company Modernization Act of
2010 (Public Law 111-325), shall apply, except as otherwise provided.
(b) (1) Except as provided in paragraph (2), the amendments made
to this section by the act adding this paragraph shall apply to
taxable years beginning on or after December 23, 2010.
(2) (A) Section 851 of the Internal Revenue Code, relating to
definition of regulated investment company, as amended by Section 201
of the Regulated Investment Company Modernization Act of 2010
(Public Law 111-325), and Section 852(b)(2)(G) of the Internal
Revenue Code, as amended by Section 201 of the Regulated Investment
Company Modernization Act of 2010 (Public Law 111-325), shall apply
to taxable years with respect to which the due date (determined with
regard to any extensions) of the return of tax for such taxable year
is on or after December 23, 2010.
(B) Section 852(b)(4) of the Internal Revenue Code, relating to
loss on sale or exchange of stock held six months or less, as amended
by Section 309 of the Regulated Investment Company Modernization Act
of 2010 (Public Law 111-325), shall apply to losses incurred on
shares of stock for which the taxpayer's holding period begins on or
after December 23, 2010.
(C) Section 852(f)(1)(C) of the Internal Revenue Code, as amended
by Section 502 of the Regulated Investment Company Modernization Act
of 2010 (Public Law 111-325), shall apply to charges incurred in
taxable years beginning on or after December 23, 2010.
(D) Section 855(a) of the Internal Revenue Code, relating to
general rule, as amended by Section 304 of the Regulated Investment
Company Modernization Act of 2010 (Public Law 111-325), shall apply
to distributions in taxable years beginning on or after December 23,
2010.
24871. (a) (1) Section 852(b)(1) of the Internal Revenue Code,
relating to imposition of tax on regulated investment companies, does
not apply.
(2) Every regulated investment company shall be subject to the
taxes imposed under Chapter 2 (commencing with Section 23101) and
Chapter 3 (commencing with Section 23501), except that its "net
income" shall be equal to its "investment company income," as defined
in subdivision (b).
(3) (A) Section 851(d)(2)(C)(i)(I) of the Internal Revenue Code is
modified by substituting "$12,500" for "$50,000."
(B) Section 851(d)(2)(C)(i)(II) of the Internal Revenue Code is
modified by substituting the phrase "the rate of tax specified in
Section 23151" for the phrase "the highest rate of tax specified in
section 11" contained therein.
(C) Section 851(d)(2)(C)(iii) of the Internal Revenue Code,
relating to administrative provisions, is modified by substituting
the phrase "Article 3 of Part 10.2 (commencing with Section 19031), a
tax imposed by this subparagraph shall be treated as a tax with
respect to which the deficiency procedures of such article apply" for
the phrase "subtitle F, a tax imposed by this subparagraph shall be
treated as an excise tax with respect to which the deficiency
procedures of such subtitle apply" contained therein.
(D) Section 851(i)(2) of the Internal Revenue Code, relating to
imposition of tax on failures, shall not apply.
(b) "Investment company income" means investment company taxable
income, as defined in Section 852(b)(2) of the Internal Revenue Code,
modified as follows:
(1) Section 852(b)(2)(A) of the Internal Revenue Code, relating to
an exclusion for net capital gain, does not apply.
(2) Section 852(b)(2)(B) of the Internal Revenue Code, relating to
net operating losses, is modified to deny the deduction allowed
under Sections 24416 and 24416.1, in lieu of denying the deduction
allowed by Section 172 of the Internal Revenue Code.
(3) In lieu of the provision of Section 852(b)(2)(C) of the
Internal Revenue Code, relating to special deductions for
corporations, no deduction shall be allowed under Sections 24402,
24406, 24410, and 25106.
(4) (A) The deduction for dividends paid, under Section 852(b)(2)
(D) of the Internal Revenue Code, is modified to allow capital gain
dividends and exempt interest dividends (to the extent that interest
is included in gross income under this part) to be included in the
computation of the deduction.
(B) For purposes of this paragraph, Section 562(c) of the Internal
Revenue Code, relating to preferential dividends, as amended by
Section 307 of the Regulated Investment Company Modernization Act of
2010 (Public Law 111-325), shall apply.
(c) Section 852(b)(3)(A) of the Internal Revenue Code, relating to
capital gains, does not apply.
(d) (1) Section 852(b)(5) of the Internal Revenue Code, relating
to exempt-interest dividends, is modified by substituting the phrase
"that, when held by an individual, the interest therefrom is exempt
from taxation by this state" for the phrase "described in section 103
(a)" contained therein.
(2) Section 852(b)(5)(A)(iv)(V) of the Internal Revenue Code,
relating to exempt interest, is modified by substituting the phrase
"on obligations that, if held by an individual, is exempt from
taxation by this state, over the amounts disallowed as deductions
under subdivision (b) of Section 24360 or Section 24425" for the
phrase "excludable from gross income under section 103(a) over the
amounts disallowed as deductions under sections 265 and 171(a)(2)"
contained therein.
(3) Section 852(b)(5)(B) of the Internal Revenue Code, relating to
treatment of exempt-interest dividends by shareholders, does not
apply.
(e) Section 854 of the Internal Revenue Code, relating to
limitations applicable to dividends received from regulated
investment companies, is modified to refer to Sections 24402, 24406,
24410, and 25106, in lieu of Section 243 of the Internal Revenue
Code.
(f) Section 852(g)(1)(A) of the Internal Revenue Code is modified
by substituting the phrase "subdivision (a) of Section 17145" for the
phrase "the first sentence of subsection (b)(5)" contained therein.
(g) (1) Except as provided in paragraphs (2) and (3), the
amendments made to this section by the act adding this subdivision
shall apply to taxable years with respect to which the due date
(determined with regard to any extensions) of the return of tax for
such taxable year is on or after December 23, 2010.
(2) Subparagraph (B) of paragraph (4) of subdivision (b) shall
apply to distributions in taxable years beginning on or after
December 23, 2010.
(3) Subdivision (f) shall apply to taxable years beginning on or
after December 23, 2010.
24871.1. (a) Section 860(f)(2)(B) of the Internal Revenue Code, as
amended by Section 301 of the Regulated Investment Company
Modernization Act of 2010 (Public Law 111-325), shall apply, except
as otherwise provided.
(b) This section shall apply to taxable years beginning on or
after December 23, 2010.
24872. (a) A real estate investment trust shall be deemed to have
satisfied the distribution requirements of Section 857(a)(1) of the
Internal Revenue Code for purposes of this part if it satisfies the
distribution requirements of Section 857(a)(1) of the Internal
Revenue Code for federal purposes.
(b) (1) Section 857(b)(1) of the Internal Revenue Code, relating
to imposition of tax on real estate investment trusts, shall not
apply.
(2) Every real estate investment trust shall be subject to the
taxes imposed under Chapter 2 (commencing with Section 23101) and
Chapter 3 (commencing with Section 23501), except that its "net
income" shall be equal to its "real estate investment trust income,"
as defined in subdivision (c).
(c) "Real estate investment trust income" means real estate
investment company taxable income, as defined in Section 857(b)(2) of
the Internal Revenue Code, modified as follows:
(1) In lieu of Section 857(b)(2)(A) of the Internal Revenue Code,
relating to special deductions for corporations, no deduction shall
be allowed under Section 24402.
(2) Section 857(b)(2)(D) of the Internal Revenue Code, relating to
an exclusion for an amount equal to the net income from foreclosure
property, shall not apply.
(3) Section 857(b)(2)(E) of the Internal Revenue Code, relating to
a deduction for an amount equal to the tax imposed in the case of
failure to meet certain requirements for the taxable year, shall not
apply.
(4) Section 857(b)(2)(F) of the Internal Revenue Code, relating to
an exclusion for an amount equal to any net income derived from
prohibited transactions, shall not apply.
(d) Section 857(b)(3) of the Internal Revenue Code, relating to an
alternative tax in case of capital gains, shall not apply.
(e) Section 857(b)(4)(A) of the Internal Revenue Code, relating to
the imposition of tax on income from foreclosure property, shall not
apply.
(f) Section 857(b)(5) of the Internal Revenue Code, relating to
the imposition of tax in case of failure to meet certain
requirements, shall not apply.
(g) Section 857(b)(6)(A) of the Internal Revenue Code, relating to
the imposition of tax on income from prohibited transactions, shall
not apply.
(h) Section 857(b)(7) of the Internal Revenue Code, relating to
income from redetermined rents, redetermined deductions, and excess
interest, shall not apply.
(i) Section 857(c) of the Internal Revenue Code, relating to
restrictions applicable to dividends received from real estate
investment trusts, is modified to refer to Sections 24402, 24406,
24410, and 25106, in lieu of Section 243 of the Internal Revenue
Code.
(j) The amendments to this section by Chapter 878 of the Statutes
of 1993 are clarifications of legislative intent and shall apply to
taxable years beginning on or after January 1, 1987.
24872.4. (a) Section 856(d)(7)(C)(ii) of the Internal Revenue Code
is modified by substituting the phrase "if received by an
organization described in subdivision (b) of Section 17651 of Part 10
or Section 23731" for the phrase "if received by an organization
described in section 511(a)(2)."
(b) (1) An election under Section 856(e)(5) of the Internal
Revenue Code for federal income tax purposes is treated for purposes
of this part as an election made by the real estate investment trust
under Section 856(e)(5) of the Internal Revenue Code for state
purposes and a separate election under paragraph (3) of subdivision
(e) of Section 23051.5 is not allowed.
(2) Any revocation of an election under Section 856(e)(5) of the
Internal Revenue Code for federal income tax purposes is treated for
purposes of this part as a revocation of the election made by the
real estate investment trust under Section 856(e)(5) of the Internal
Revenue Code for state purposes and a separate election under
paragraph (3) of subdivision (e) of Section 23051.5 is not allowed
with respect to the property for any subsequent taxable year.
(3) If the real estate investment trust fails to make an election
under Section 856(e)(5) of the Internal Revenue Code for federal
income tax purposes with respect to any property, that property may
not be treated for purposes of this part as foreclosure property, an
election under Section 856(e)(5) of the Internal Revenue Code for
state purposes with respect to that property is not allowed, and a
separate election under paragraph (3) of subdivision (e) of Section
23051.5 is not allowed with respect to that property.
24872.6. (a) A corporation, trust, or association that is a real
estate investment trust for any taxable year for federal purposes
under Part II (commencing with Section 856) of Subchapter M of
Chapter 1 of Subtitle A of the Internal Revenue Code (as applicable
for federal purposes for the taxable year) shall be a real estate
investment trust for purposes of this part for the same taxable year.
(b) A corporation, trust, or association that is not a real estate
investment trust for any taxable year for federal purposes under
Part II (commencing with Section 856) of Subchapter M of Chapter 1 of
Subtitle A of the Internal Revenue Code (as applicable for federal
purposes for the taxable year) shall not be a real estate investment
trust for purposes of this part for the same taxable year.
(c) (1) An election to be a real estate investment trust for
federal purposes under Section 856(c)(1) of the Internal Revenue Code
(as applicable for federal purposes for the taxable year) shall be
treated, for purposes of Part 10 (commencing with Section 17001),
Part 10.2 (commencing with Section 18401), and this part, as an
election to be a real estate investment trust for state purposes for
the same taxable year and a separate election under paragraph (3) of
subdivision (e) of Section 23051.5 shall not be allowed.
(2) The termination or revocation of an election described in
paragraph (1) for federal purposes under Section 856(g) of the
Internal Revenue Code (as applicable for federal purposes for the
taxable year) shall be treated, for purposes of Part 10 (commencing
with Section 17001), Part 10.2 (commencing with Section 18401), and
this part, as a termination or revocation, as the case may be, of an
election described in paragraph (1) for state purposes and a separate
termination or revocation of an election described in paragraph (1)
under paragraph (3) of subdivision (e) of Section 23051.5 shall not
be allowed.
(3) This subdivision shall apply to any election to be a real
estate investment trust that is effective for federal purposes for
taxable years beginning on or after January 1, 2001.
24872.7. (a) (1) (A) Whenever a penalty is imposed for federal
purposes under Section 857(f)(2)(A) or (B) of the Internal Revenue
Code, whichever is applicable, it shall be deemed that the real
estate investment trust has failed to comply with the requirements of
Section 857(f)(2)(A) or (B) of the Internal Revenue Code, whichever
is applicable, for state purposes for that taxable year and a penalty
equal to the penalty determined for federal purposes under Section
857(f)(2)(A) or (B) of the Internal Revenue Code, whichever is
applicable, shall be imposed and shall be paid on notice and demand
and in the same manner as tax.
(B) No penalty shall be imposed under this paragraph if the
Secretary of the Treasury, under Section 857(f)(2)(D) of the Internal
Revenue Code, has determined that the failure to comply is due to
reasonable cause and not to willful neglect.
(2) (A) Whenever a penalty is imposed for federal purposes under
Section 857(f)(2)(C) of the Internal Revenue Code it shall be deemed
that the real estate investment trust has failed to comply with the
requirements of Section 857(f)(2)(C) of the Internal Revenue Code for
state purposes for that taxable year and an additional penalty equal
to the penalty determined for federal purposes under Section 857(f)
(2)(C) of the Internal Revenue Code shall be imposed and shall be
paid on notice and demand and in the same manner as tax.
(B) No penalty shall be imposed under this paragraph if the
Secretary of the Treasury, under Section 857(f)(2)(D) of the Internal
Revenue Code, has determined that the failure to comply is due to
reasonable cause and not to willful neglect.
(b) This section shall apply to taxable years beginning after
August 5, 1997.
(c) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
24873. Section 860F(a) of the Internal Revenue Code, relating to
the 100 percent tax on prohibited transactions, shall not apply.
24874. A real estate mortgage investment conduit (REMIC) shall be
subject to the minimum franchise tax imposed under Section 23153.
24875. (a) A financial asset securitization investment trust
(FASIT) shall be subject to the minimum franchise tax imposed under
Section 23153.
(b) Section 860H(b) of the Internal Revenue Code, relating to the
taxation of holder of ownership interest, shall be modified as
follows:
(1) All activities of a FASIT shall be treated as activities,
including for purposes of Section 23101, of the holder of the
ownership interest in the FASIT.
(2) Section 860H(b)(3) of the Internal Revenue Code, shall not
apply.
(c) Section 860J(d) of the Internal Revenue Code, relating to
affiliated groups, shall not apply.
(d) A reference to the "rate of tax specified in Section 23151"
shall be substituted for "highest rate of tax specified in Section 11
(b)(1)" of the Internal Revenue Code, contained in Section 860K of
the Internal Revenue Code, relating to treatment of transfers of
high-yield interests to disqualified holders.
(e) Section 860L(e) of the Internal Revenue Code, relating to tax
on prohibited transactions, shall not apply.
(f) For purposes of Chapter 4 of Part 10.2 (commencing with
Section 19001) the taxes imposed by this section shall be treated as
taxes to which the deficiency procedures of that article apply.
24875.5. (a) Section 860L(b)(1)(A) of the Internal Revenue Code is
modified by substituting the phrase "on or after the startup date"
for the phrase "after the startup date."
(b) Section 860L(d)(2) of the Internal Revenue Code is modified by
substituting a reference to Section 860I(b)(2) of the Internal
Revenue Code in lieu of the reference to Section 860I(c)(2) of the
Internal Revenue Code.
(c) This section shall apply on and after September 1, 1997.
(d) This section shall not apply to income years beginning on or
after January 1, 1998.
24900. (a) The Franchise Tax Board may include in the gross income
of the taxpayer (or a member of the taxpayer's combined reporting
group) in that taxable year the taxpayer's pro rata share (or the pro
rata share of a member of the taxpayer's combined reporting group)
of any of those insurers' current earnings and profits in that
taxable year, but not to exceed an amount equal to the specific
insurer's net income attributable to investment income for that year
minus that insurer's net written premiums received in that same
taxable year, if all of the following apply:
(1) For any taxable year an insurer is a member of a taxpayer's
commonly controlled group.
(2) The ratio of the five-year average net written premiums to the
five-year average total income of all insurers in the commonly
controlled group is equal to or less than 0.10 (or, for taxable years
beginning on or after January 1, 2008, 0.15).
(3) The accumulation of earnings and profits of the insurers in
the commonly controlled group had a substantial purpose of avoidance
of taxes on, according to, or measured by income, of this state or
any other state.
The amount so included shall be treated as a dividend received
from an insurance company during the taxable year, and to the extent
applicable, Section 24410 shall apply to that amount.
(b) If the insurer members of the commonly controlled group
constitute a predominantly captive insurance group (as defined in
paragraph (6) of subdivision (e)), then the ratio described in
subdivision (a) shall be 0.40.
(c) To the extent that amounts are included in the gross income of
a taxpayer (or a member of the taxpayer's combined reporting group)
pursuant to subdivision (a), those amounts shall not again be
considered as investment income in the application of the ratio
described in paragraph (2) of subdivision (a).
(d) The amounts included in gross income under subdivision (a)
shall not again be included in gross income when subsequent
distributions are made to the taxpayer (or a member of the taxpayer's
combined reporting group), or another taxpayer that acquires an
interest in the stock of the taxpayer (or a member of the taxpayer's
combined reporting group with respect to which subdivision (a) was
applied), or any successor or assign of the respective taxpayers (or
a member of the taxpayer's combined reporting group) described in
this subdivision. For purposes of applying this subdivision,
distributions from an insurer shall be considered first made from
amounts included under subdivision (a).
(e) For purposes of this section, the following definitions shall
apply:
(1) Except as otherwise provided, the phrases "net written
premiums," "five-year average net written premiums" and the
"five-year average total income" shall each have the same meaning,
respectively, as applicable for purposes of subdivision (c) of
Section 24410, whether or not a dividend is actually received from
any insurer member of the taxpayer's commonly controlled group in
that taxable year.
(2) "Net income attributable to investment income" means net
income of the insurer multiplied by a ratio, the numerator of which
is the insurer's gross investment income from interest, dividends
(other than dividends from members of the taxpayer's commonly
controlled group), rent, and realized gains or losses, and the
denominator of which is the insurer's gross income (other than
dividends from members of the taxpayer's commonly controlled group)
from all sources. In the application of the preceding sentence, if an
insurer is required to file a Statutory Annual Statement pursuant to
the Annual Statement Instructions and Accounting Practices and
Procedures Manual promulgated by the National Association of
Insurance Commissioners, "net income" means net income required to be
reported in the insurer's Statutory Annual Statement.
(3) An insurer is any insurer within the meaning of Section 28 of
Article XIII of the California Constitution, whether or not the
insurer is engaged in business in California.
(4) The phrase "commonly controlled group" shall have the same
meaning as that phrase has under Section 25105.
(5) The phrase "combined reporting group" means those corporations
whose income is required to be included in the same combined report
pursuant to Section 25101 or 25110.
(6) A "predominantly captive insurance group" means the insurer
members of a commonly controlled group where the insurers receive
more than 50 percent of their net written premiums (without regard to
the weighting factors in paragraph (1) of subdivision (e) of Section
24410) from members of the commonly controlled group or the ratios
in clause (i) or clause (ii) of subparagraph (B) of paragraph (1) of
subdivision (d) of Section 24410 is greater than 50 percent. The
provisions of paragraph (4) of subdivision (d) of Section 24410 shall
apply for purposes of this paragraph.
(7) (A) The taxpayer's "pro rata share" of the current earnings
and profits of an insurer member of a commonly controlled group is
the amount that would have been received as a dividend by the
taxpayer (or a member of the taxpayer's combined reporting group) if
both of the following apply:
(i) The insurer had directly distributed its current earnings and
profits with respect to its stock held by the taxpayer (or member of
the taxpayer's combined reporting group).
(ii) In the case of an insurer holding the stock of another
insurer, all other insurer members of the taxpayer's commonly
controlled group had distributed the same current earnings and
profits with respect to their stock, in the same taxable year, until
amounts were received as a dividend by the taxpayer (or a member of
the taxpayer's combined reporting group) from an insurer member of
the commonly controlled group.
(B) In the application of this section, amounts treated as a
dividend received by a partnership shall be considered a dividend
received by each partner that is a member of the commonly controlled
group, either directly or through a series of tiered partnerships.
(f) The Franchise Tax Board may prescribe those regulations that
are appropriate to describe conditions under which the accumulation
of earnings and profits of those insurers described in paragraph (2)
of subdivision (a) do not have the substantial purpose of avoidance
of taxes on, according to, or measured by income, of this state or
any other state.
(g) If this section or any portion of this section is held
invalid, or the application of this section to any person or
circumstance is held invalid, that invalidity shall not affect other
provisions of the act adding this section, or the provisions of this
section that are severable.
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